GST

NEW DELHI: Home buyers will have to pay 12 per cent GST on balance amount due to the builder if the housing project has been granted completion certificate by March 31, 2019, the CBIC has said.
Builders who have received completion certificate for an ongoing project before April 1, 2019, will have to charge 12 per cent GST from buyers on the balance amount due towards purchase of the flat.
Issuing the second set of FAQs for real estate sector, the Central Board of Indirect Taxes and Customs (CBIC) said that builders will not be able to adjust the accumulated credits in ongoing projects in case they opt for lower new GST rate of 5 per cent for normal and 1 per cent for affordable housing.
The first set of FAQs for real estate sector was issued last week to clarify doubts with regard to migration of real estate developers to new GST rates for the sector which has come into force from April 1, 2019.
The GST Council, headed by Finance Minister Arun Jaitley and comprising state counterparts, had in March allowed real estate players to shift to 5 per cent GST rate for residential units and 1 per cent for affordable housing without the benefit of input tax credit (ITC) from April 1, 2019.
For the ongoing projects, builders have been given the option to either continue in 12 per cent Goods and Services Tax (GST) slab with ITC (8 per cent for affordable housing), or opt for 5 per cent GST rate (1 per cent for affordable housing) without ITC and communicate to their respective jurisdictional officers the same by May 20.
To a query on what shall be the rate of GST applicable on projects in respect of which occupation certificate has been issued prior to April 1, 2019, but the balance demands are pending, the FAQ said: “Time of supply of the service by way of construction of apartments in such projects falls prior to April 1, 2019, and accordingly the rates as existed prior to April 1, 2019, would apply to such balance demands.”
AMRG & Associates Partner Rajat Mohan said, “This clarification has tightened the grip on taxpayers who intended to take benefit of lower taxes rates with the aid of deferred invoicing.”
On whether accumulated ITC can be adjusted against new tax liability of 5 per cent and 1 per cent, the FAQ said: “No. GST on services of construction of an apartment by a promoter at the rate of 1 per cent/ 5 per cent is to be discharged in cash only. ITC, if any, may be used for discharging any other supply of service.”
“Developers opting for new tax regime for ongoing projects now has another reason to refrain from new scheme,” Mohan said.
The CBIC further clarified that exempted goods procured by a builder under the new tax regime would not be counted within the 80 per cent limit set for procurement from registered dealers.
“This could entail an additional tax of 18 per cent on value of exempt supplies, credit of which would not be available to developers,” Mohan added.
While deciding on lower GST rates for real estate sector, the Council had said that at least 80 per cent of the inputs should be procured from registered dealer.
The CBIC has also clarified that developer and not the land owner will have the right to decide whether to opt for new GST rates or stick to old rates for ongoing projects.
EY Tax Partner Abhishek Jain said: “Clarifications on some technical ambiguities like non-applicability of new rates for projects completed before April, 2019, valuation of TDR, etc should help resolve some involved issues for this sector.”

NEW DELHI: The taxman has asked builders to choose before May 10 the new goods & services tax (GST) rate for ongoing realty projects.
The concessional rate, which came into effect April 1, was set at 1% for affordable houses and 5% for others, from the earlier 8% and 12%, respectively. Developers of under-construction projects could opt for the new or previous rate, but now they have been asked to exercise this option before Friday in the prescribed format.
This means, two people buying identical flats in the same apartment complex but in different buildings or towers, could technically end up paying different GST rates.
If the developer does not choose the rates before May 10, then the new GST rates will kick in automatically, the Central Board of Indirect Taxes and Customs said. The rules of the concessional scheme, including transitional ones, will apply, it said.
In the case of projects that begin on or after April 1, no such option is available, and these residential apartments will compulsorily have to pay the new 1% and 5% rates.
“Developers need to carefully evaluate as to which scheme is more efficient and clearly communicate to the customers accordingly,” said Siddharth Mehta, partner, indirect tax, PwC.
The builder, not the buyer, gets to choose the new rate regime. In effect, the tax component of buyers could vary from building to building even if they opt for flats in the same apartment complex, experts say.
“Buyers would now face situations where buildings under construction in the same complex could be subjected to differing rates of GST as builders could exercise the option of availing input tax credits on some buildings and foregoing the credits on others,” said M S Mani, partner, Deloitte India.
If flats are booked before April 1but cancelled, the tax paid can be adjusted against any other GST liability, including the 1% or 5% rates outgo.
However, if the cancelled flats are resold after April 1, the credit availed earlier on procurements will be reversed.
In projects where one building is registered under RERA but construction, booking and occupancy of buildings vary then the rate will be determined for the project as a whole,
Deduction of land would be onethird and not on the actual land value, the CBIC said.

NEW DELHI: Real estate firms have time till May 10 to communicate to their respective jurisdictional officers whether they want to continue with the old GST rates with input tax credit, failing which they will be deemed to have migrated to new tax rates.

The GST Council had given the option to real estate companies to either opt for old rates of 12 per cent (for residential) and 8 per cent (affordable housing) with input tax credit (ITC) benefits or the new tax rates of 5 per cent for residential units and 1 per cent for affordable housing without the benefit of adjusting the credit on inputs used during construction.

The Central Board of Indirect Taxes and Customs (CBIC) has issued a notification giving real estate companies a one-time option to choose either of the tax rates.

“Provided that in case of ongoing project, the registered person shall exercise one time option … to pay central tax on construction of apartments in a project at the rates as specified …. by the 10th of May, 2019,” the CBIC said.

In case, realtors do not exercise the option, they will be covered under the lower tax rate of 5 per cent and 1 per cent with effect from April 1, 2019, and will not be entitled to avail tax credit on inputs.

Meanwhile, in a separate notification, the CBIC has asked the real estate companies that will be migrating to the new rates to prepare their books of accounts with regard to ITC and repay the over-used credit, if any, to the government in 24 instalments.

Explaining the provision, AMRG & Associates Partner Rajat Mohan said builders opting for lower rate of taxes with effect from April 1 would have to recalculate eligible tax credit since the inception of GST based on the proportion of residential to commercial carpet area, sold to unsold units and invoiced to un-invoiced amount.

“Based on the factual data if tax credit has been availed beyond permissible proportion, then such excess needs to paid back to tax authorities. In quite a few cases, such tax payment would be magnanimous, especially where the project is nearing completion, but unsold units lying in inventory are high. This will have a high tax risk on real estate sector and many may experience worst cash flow position since inception of GST,” Mohan said.

Further the CBIC has also asked builders to maintain project wise account of inward supplies from registered and unregistered supplier.

“GST mandated a state-wise registration. However, now taxpayers in real estate sector are liable to produce project-wise break-up of procurements and outward supplies in order to re-calculate admissible tax credits. This will burden a taxpayer with multiple tax records to be updated on regular basis, moving away from ‘Ease of doing business’,” Mohan said.

“Good and Simple Tax” — that is how Prime Minister Narendra Modi introduced the Goods and Services Tax (GST) to Indians, in his speech at the launch of the new tax regime a year ago. GST was rolled out in the intervening night of June 30 and July 1, last year, in a ceremony held in the Central Hall of Parliament.

The government has planned a mega event to celebrate the first anniversary of GST on July 1, which has now been christened ‘GST Day’. “Union Minister for Railways, Coal, Finance & Corporate Affairs Piyush Goyal will preside over as the Chief Guest of the event and Minister of State for Finance, Shri Shiv Pratap Shukla will be the Guest of Honour,” the finance ministry said in a statement.

Union minister Arun Jaitley who was instrumental in the implementation of GST would be addressing the gathering through video conferencing, news agency PTI reported. Jaitley is currently recuperating from a kidney surgery and Goyal is in-charge of the finance ministry in his absence.

In his GST launch speech last year, PM Modi had likened teething problems of the new tax system to ‘adjusting to a new pair of spectacles’.

A year later on Friday, Arun Jaitley in a blog post wrote, “Last year, the impact of the GST on direct tax collection was not visible. Since GST had been imposed in the middle of the year, it will be more apparent this year.”

In the post, Jaitley credited GST for having a ‘significant impact’ on the hike indirect tax collection too. “Those who have disclosed a business turnover for the GST now find it difficult not to disclose their net income for the purposes of income tax,” Jaitley said.

The Modi government has canvassed improvement in tax collection and compliance as one of its major successes on the economic front.

Another area where the finance ministry could take pride is fiscal consolidation. The fiscal deficit under this government has largely remained under control despite not being able to meet the target in the last financial year (FY).

The fiscal deficit is the difference between total revenue and total expenditure of the government.

In the budget for FY 2018-19, Arun Jaitley set the fiscal deficit target for 2018-19 at 3.3 per cent of the gross domestic product (GDP) to accommodate higher demand for expenditure against the earlier target of 3 per cent. The government also revised the deficit target for the year ending in March 2018 to 3.5 per cent of GDP from the targeted 3.2 per cent.

With the May fiscal deficit touching 55.3 per cent of the budget estimate (BE), the government would require a steady and healthy flow of revenues from GST to be able to meet the fiscal deficit target.

Collection from GST had been choppy through a large part of the last year but has stabilised in the last few months on the back of anti-evasion measures like the rollout of the e-way bill. GST collection in May amounted to Rs 94,016 crore, down from April’s record Rs 1.03 lakh crore but well above the monthly average since the tax was rolled out last year.

The government would thus, bet big on its year-old flagship tax reform to keep its coffers in a good shape to be able to carry out expenditures without fiscal pressure in the election year. The fact that revenue deficit had shot up to 2.6 per cent of GDP in FY 2017-18 from the budget estimate of 1.9 per cent, will make the government even more vigilant.

GST was rolled out a year ago in a setting which many compared to Jawaharlal Nehru’s famous ‘tryst with destiny’ speech on August 15, 1947. As the GST regime stabilises, India’s biggest tax reform has the onus to keep the country’s finances steady as we head to a general election.

To enhance transparency in property transactions, the GST Council is expected to bring the real estate sector under the purview of the unified indirect tax regime GST from 1 April next, an expert has said. “It could be introduced from 1st April, and the legislative changes could be done in this (budget) session to facilitate this,” CBEC (Central Board of Excise and Customs) ex-Member VS Krishnan told business news channel BTVI in an interview.

Krishnan said the sector can be brought under the GST as a deemed service. “Land may not be a service, but what you have is right to use the land for residential construction… therefore, it can be treated as a service,” Krishnan told BTVI. “What’s going to happen is that the whole transaction is going to become transparent… which means what has happened after demonetisation, that process is likely to go forward… in a sense that organised players will welcome.”

Krishnan further said that the GST rate imposed on the sector may not be very high “because real estate is linked to affordable housing”. “The government may think of 12 percent. But 12 percent may have a backlog with the accumulation of credit… because GST paid on land would also be set off, the GST paid on cement and steel would be set off, and the GST paid in the earlier process of construction services will be set off,” Krishnan elaborated.

“So, it may be revenue-neutral in the GST side, but it will clean up the land market, and probably also encourage foreign investors to invest in the real estate sector.” According to sources, the proposal to include the real estate sector under the purview of the unified indirect tax regime is expected to be discussed at the council’s meeting to be held in New Delhi on Thursday.

Sources: Firstpost.com

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